Hi DrJoe,
I wish to make a point without seeming argumentive, so if it comes across
that way, I apologize in advance.
While you say you don't plan to sell your leaps, at some time you must
either sell them, or exercise the option. You supplied an example in your
DLS document of the December 2010, $90 SPY leaps sold for $40.23. Today,
those leaps are quoted at $24.20 bid, a loss of 40%.
If you are using the premiums generated as your monthly income, when the
time comes to buy or exercise the leaps, if the market is at the same level
as it is now, you will have to take the loss and find yourself with much
less capital to start your new round of DLS activity.
Dan (dan2fl)
-----Original Message-----
From: ConservativeOptionS
[mailto:ConservativeOptionS
leigh
Sent: Tuesday, December 01, 2009 11:52 AM
To: ConservativeOptionS
Subject: [ConservativeOption
!!
dan, when someone has a buy and hold portfolio in retirement do they employ
a timing mechanism? as with a home...i don't get my home appraised
daily....i have not sustained a loss until i sell my leaps which i don't
plan to do as they are part of my core portfolio (would be in my buy and
hold)...the premiums generated are my monthly income. if i had equivalent
stock portfolio (not leaps) i would have about 500,000 invested. (leaps
reduce exposure)...
170-200k loss if i weren't trading dls. i do not plan to revise the
strategy to add a timing mechanism.
i don't encourage anyone to use the dls strategy. this paper started
because we were discussing a lot of option strategies and people kept asking
me the same questions about my trading. i therefore wrote the paper to
answer most of the questions. if no one ever trades this that would be ok
with me. it is by no means something to follow to the letter. if someone
does trade it they should use the paper as a general guideline and implement
their own experiences and skills to manage based on their style and risk
management. drjoe
--- In ConservativeOptionS
wrote:
>
> Hi,
>
> I appreciate all the information you supply and am particularly
appreciative
> of the honesty with which you report your results.
> That said, I wonder about the efficacy of the DLS strategy when used
without
> some sort of market timing mechanism to keep you out of downtrends.
> You reported an average return of $3,000 per month over the last 39 months
> based on an investment of $299,000. However you also report a drop in
value
> of your leaps of about 25%. This indicates that the leaps are now worth
> about $224,250 or a loss of $74,750.
> Over the 39 months you gained $3,000 x 39 for a total of $117,000 less the
> capital loss of $74,750. This means that if you wanted to maintain the
> $299,000 amount for your leaps, you would have a total income for the
three
> years of $42,250, or about 4.4% per year.
> This seems a far cry from your goal of 30% per year for the DLS strategy.
> Are you planning to revise the DLS strategy to incorporate some sort of
> timing mechanism?
>
> Dan (dan2fl)
>
> -----Original Message-----
> From: ConservativeOptionS
> [mailto:ConservativeOptionS
> leigh
> Sent: Monday, November 30, 2009 6:54 AM
> To: ConservativeOptionS
> Subject: [ConservativeOption
Again
> !!
>
> M. just like the rental analogy. if you own a home that you rent out how
> often do you get it appraised? i bought $xxx of leaps (my home to rent)
and
> it generated for me during the 39 months of these particular leaps a
maximum
> of 12,000 one month and during the worst of the market collapse i was able
> to always generate at least $1000 a month. average over the 39 months
ended
> up as of last month $3000 a month. my leaps are down about 25% which is
> less than the market. drjoe
>
> --- In ConservativeOptionS
> <research@> wrote:
> >
> > Dr. Joe,
> >
> >
> >
> > Can you share what your results have been? i.e. X% average annual
return
> > for last Y years with the worst monthly loss being Z%?
> >
> >
> >
> > I'd just like to understand what is possible and what expectations are
> > reasonable.
> >
> >
> >
> > Thanks,
> >
> >
> >
> > M
> >
> >
> >
> >
> >
> > _____
> >
> > From: ConservativeOptionS
> > [mailto:ConservativeOptionS
> > leigh
> > Sent: Sunday, November 29, 2009 2:20 PM
> > To: ConservativeOptionS
> > Subject: [ConservativeOption
> Again
> > !!
> >
> >
> >
> >
> >
> > jd....my strategy only uses leaps with at least 0.8 delta and even
> > higher...drjoe
> >
> > --- In ConservativeOptionS
> > <mailto:Conservativ
> > trategies@yahoogrou
> > >
> > > personally, I have completely revised my leaps straegy. I now use a
> > stock replacement leap. To wit: I only buy leaps which have a delta
> > greater than .75. If the stock goes up, my leap grows faster than the
> > short term option and I can afford to buy it back if I have to by either
> > using cash or rolling the leap up to get cash. If I don't sell a short
> > term option and the stock goes up, I can harvest cash by rolling the
> > option. Â
> > > Â
> > > You can buy a $40 stock's stock replacement for less than a third and
> then
> > make your rent on that. 50 cent on $10 is acceptable while 50 cent on
$40
> > isn't.
> > > Â
> > > Also, a stock replacement leap tends to be rollable out and up much
> > easier than the less expensive ones.Â
> > >
> > > --- On Sun, 11/29/09, bgupta92@ <bgupta92@> wrote:
> > >
> > >
> > > From: bgupta92@ <bgupta92@>
> > > Subject: Re: [ConservativeOption
> > Again !!
> > > To: ConservativeOptionS
> > <mailto:Conservativ
> > trategies@yahoogrou
> > > Date: Sunday, November 29, 2009, 10:09 AM
> > >
> > >
> > > Â
> > >
> > >
> > >
> > >
> > >
> > > Mark,
> > > Â
> > > I'm sure Dr. Joe will give you the same advice (at least I hope so).
You
> > want to sell calls at the strike that has the maximum extrinsic value.
> > Usually that is the first strike ITM or OTM. Also you want to sell fewer
> > calls than you have long calls. His thumb rule is about 8:10 - so about
8
> > short calls for 10 long calls. Look at that on a P/L graph and you will
> see
> > what he means by uncovered longs. The graph will typically increase at a
> > steep (relative) rate up to the short strike and then flatter but still
> > increase at a shallower rate above the short strike.
> > > Â
> > > Once both the short and the long are ITM your profit comes from 2
areas.
>
> > > Â
> > > First it comes from the decay in the extrinsic value of the short
being
> > greater than the decay in the extrinsic value of the long - which is why
> you
> > want to sell the short that has the maximum extrinsic value.
> > > Â
> > > Second it comes from having more intrinsic value in the longs but only
> > because you have more longs than shorts. If for example you had the same
> > number of shorts as you have longs, the gain on the intrinsic of the
long
> > will be exactly offset by the loss on the intrinsic of the short. If
> instead
> > you have 10 longs and 8 shorts and the underlying moved by $1, the longs
> > would gain $10 on the intrisic portion but the short position would lose
> $8
> > for a net gain of $2 on the intrinsic.
> > > Â
> > > If the underlying was below the short strike (i.e. the short strike
was
> > OTM), for every $1 movement of the underlying, the longs would gain $10
on
> > the intrinsic (same example as above) and a little bit on the extrinsic.
> > since the short strike is OTM there is no gain/loss on the intrinsic but
> of
> > course there is a gain on the extrinsic. Overall, it is the gain on the
> > intrinsic of the long that is the significant contribution to your
overall
> > P/L which is why the P/L is steeper below the short strike andÂ
shallower
> > above the short strike.Â
> > > Â
> > > Hope this helps....
> > > Â
> > >
> > > ----- Original Message -----
> > > From: "mark bluhm" <mbluhm2001@
> > > To: ConservativeOptionS trategies@ yahoogroups. com
> > > Sent: Sunday, November 29, 2009 11:56:54 AM GMT -05:00 US/Canada
Eastern
> > > Subject: Re: [ConservativeOption Strategies] Let's Get the Site Active
> > Again !!
> > >
> > > Â
> > >
> > >
> > >
> > >
> > >
> > > Dr. Joe,
> > >
> > >
> > > I'm sure we are all in the same boat with the LEAPs underwater, i know
> am.
> > Â I guess that i've messed up in that i've been too afraid to sell
options
> > uncovered and therefore have not been getting the income you have been.
Â
> > Would it be possible to share how you pick the strike price to sell your
> > options and when you decide each month to do so? That would be very
> helpful.
> > Â
> > >
> > >
> > > I have purchased new 2011 Leaps when the market was low but still own
> the
> > OTM 2010 Leaps. I'm thinking of sell these for a big loss instead of
> holding
> > on to them to expire while the market is up. Â Any thoughts on what to
do
> > with the 2010 OTM leaps?
> > >
> > >
> > > Glad you are back. I'm still liking this system even though the market
> has
> > crashed. Â It still has a lot of merit.
> > >
> > >
> > > Thanks,
> > > Mark
> > >
> > >
> > >
> > >
> > >
> > >
> > > From: joe & leigh <gass20@>
> > > To: ConservativeOptionS trategies@ yahoogroups. com
> > > Sent: Sun, November 29, 2009 7:27:26 AM
> > > Subject: [ConservativeOption Strategies] Let's Get the Site Active
Again
> > !!
> > >
> > > Â
> > >
> > > Would love for members to post their strategies and post questions for
> > other members.
> > >
> > > I am still trading the DLS and am satisfied considering the worst
market
> > correction in decades. I am trading a lot of naked puts and covered
calls.
> > >
> > > Someone who bought a second home (condo) in a place like Florida at
the
> > high of the real estate market to rent and generate income....his
condo's
> > market value is probably 40% below his purchase price. I know, I live
> there.
> > However, he is still able to generate monthly rent comparable to when
the
> > real estate market was high while he waits for his condo's value to
return
> > to purchase price.
> > >
> > > Well my leaps (condo) are well below cost basis. However, my current
> leap
> > positions opened 39 months ago has generated about $3000/mo.(rent i
> > generated). Initially, leaps were generating 8-10k per month and during
> the
> > correction I was able to generate at least 1-1.5k per month...averaging
> over
> > the time period the $3000/mo. My leaps are about the same % below
purchase
> > price than if I had bought a portfolio of buy and hold. The difference
is
> I
> > have generated $118,000 in premiums over the 39 months. Where the buy
and
> > hold owner generated no rent/income.
> > >
> > > I am finding that selling puts if managed well is easier and less time
> > consuming than the DLS strategy.
> > >
> > > dr joe
> > >
> >
>
>
>
>
> ------------
>
> Yahoo! Groups Links
>
>
>
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